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The dynamics of development : innovation and reallocation

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  • Buera,Francisco J.
  • Fattal Jaef,Roberto N.

Abstract

This paper proposes a quantitative model of firm dynamics with endogenous innovation to study growth acceleration episodes triggered by reforms. The authors find that reforms removing barriers to firm entry lead to persistent growth in TFP and declining average firm size, as in the experience of successful post-communist transitions. Reforms that reverse resource misallocation result in more protracted paths of TFP and rising average firm size, as in the experience of non-communist growth accelerations. When calibrating the reforms to data from Chile's and China?s growth accelerations, the model can replicate the macro and firm-level features of these episodes.

Suggested Citation

  • Buera,Francisco J. & Fattal Jaef,Roberto N., 2018. "The dynamics of development : innovation and reallocation," Policy Research Working Paper Series 8505, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8505
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    Cited by:

    1. Joel M. David & Venky Venkateswaran, 2019. "The Sources of Capital Misallocation," American Economic Review, American Economic Association, vol. 109(7), pages 2531-2567, July.
    2. Da-Rocha, José-María & Restuccia, Diego & Tavares, Marina M., 2023. "Policy distortions and aggregate productivity with endogenous establishment-level productivity," European Economic Review, Elsevier, vol. 155(C).
    3. Venky Venkateswaran & Joel David, 2017. "Capital Misallocation: Frictions or Distortions?," 2017 Meeting Papers 1636, Society for Economic Dynamics.
    4. Joonkyu Choi, 2018. "Entrepreneurial Risk-Taking, Young Firm Dynamics, and Aggregate Implications," 2018 Meeting Papers 1018, Society for Economic Dynamics.
    5. Todd Schoellman & Bart Hobijn, 2017. "Structural Transformation by Cohort," 2017 Meeting Papers 1417, Society for Economic Dynamics.
    6. Lopez-Martin, Bernabe & Perez-Reyna, David, 2021. "Contracts, firm dynamics, and aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    7. Sohail, Faisal, 2021. "From employee to entrepreneur: Learning, employer size, and spinout dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    8. Joel M. David & Venky Venkateswaran, 2016. "Frictional Investment and the Sources of Misallocation," Working Papers 16-13, New York University, Leonard N. Stern School of Business, Department of Economics.

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